February 06, 2009

Health insurance time bomb

The City of Buffalo and eight other local governments face a $3.7 billion liability for future retiree health insurance, an amount so large it could add up "to the end of local government as we know it," according to a study by the University of Buffalo.

Virtually every locality statewide funds retiree health insurance on a pay-as-you go basis, which means that future taxpayers who are yet-to-be born, will shoulder the costs of premiums for employees who retired decades earlier. The state of New York itself faces a $50 billion liability, the highest in the nation.

Exacerbating the problem, a state law, which applies only to school districts, prevents them from altering health benefits for retirees unless the same changes are made for current employees.

In the Hudson Valley, the Highland school district, which attempted to trim retiree health costs, is being sued by six current and former school administrators. They claim the district illegally changed benefits promised when they were hired, the Kingston Daily Freeman reports.

Victor Livicorri, the Highland school district's acting superintendent, said...that the district has, indeed, required of current administrators the same 15 percent contribution, but on the topic of the lawsuit itself, he would say only that the district's legal counsel is working toward a fair resolution.

In Western New York, the future price tag for retiree health insurance is staggering: Buffalo Public Schools has an unfunded liability of $1 billion; the City of Buffalo, $945 million, the Buffalo News reports.

This year Erie County will spend $18 million for current retiree costs, an amount expected to triple in a decade.

"Some of these numbers are amazing," said Kathryn Foster, director of UB's Regional Institute. "But you can't just throw up your hands. This is not going to go away."

If governments fail to deal with the problem, she predicts that a day will come when no money will be available for parks, youth programs, senior citizen centers and other popular but nonmandated services--or elected officials will be forced to sharply raise property taxes.

Posted by Lise Bang-Jensen

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